For how long should I fix my mortgage?

Fixed rate mortgages are typically the first port of call for borrowers, offering rate certainty and set repayments that can make the process of homeownership more streamlined and potentially cheaper, too.

But the question is, how long should you fix your mortgage for? This guide will discuss your options in more detail.

How long can you fix a mortgage for?

Initial terms typically range from two to 10 years. Two-year mortgages are the most common, but you can also get three-year fixed rate mortgages, five-year deals and even 10-year options, allowing you to fix your rate and your repayments for a decade.

It’s important to note that this only comprises the initial term of your mortgage. Standard mortgage terms can be as long as 30 years or more, with only the first few years being fixed (though you can still remortgage and bring the overall term down, as is the case with all mortgage deals).

What term should I fix my mortgage for?

Knowing which fixed rate mortgage term to go for isn’t always an easy decision. A lot of factors can go into it, such as:

• the rates on offer
• future market expectations (i.e., do you expect rates to rise or fall in the next few years?)
• your homeownership and moving plans
• your finances and level of risk (would you prefer to fix your rate for longer to reduce any repayment shocks?).

Traditionally, two-year fixed mortgages are the go-to offering and usually offer the best mortgage rates. However, the uncertainty of recent years means some borrowers may like to seek longer-term deals instead. Three, five and 10-year mortgages offer longer repayment certainty, but given that longer terms typically result in higher mortgage rates, they’re usually more expensive.

There are also fees to consider. If you switch to a new deal every two years you’ll be paying far more in remortgage and legal fees than if you had a five or 10-year deal, so it’s worth factoring this into your calculations as well.

Is it better to have a shorter or longer mortgage?

There’s risk on either side of the scale.

Opt for a two-year deal and, if interest rates have risen substantially in that time, you’ll be faced with far higher repayments after a relatively short period. If you’d have taken out a longer-term deal instead, you’d be protected against those higher repayments for much longer.

However, if the opposite were to happen and interest rates fell, you’d be able to benefit far more quickly if you were on a two-year deal, whereas those tied in for 10 years could end up paying far more in interest than they’d otherwise have to.

Some borrowers may like to go for the middle ground, with three- or five-year deals offering a good compromise between being protected from interest rate rises and not being locked in for too long should rates go down.

Ultimately, it’s all about balancing the risks, and factoring in your circumstances, preferences and budget to decide which term would be best for you. This is also where the expertise of a broker can be invaluable, as they’ll be able to discuss the options in more detail and help you decide on the mortgage that’s perfect for your needs.

Should you get a two- or five-year fixed mortgage?

Torn between a two- and five-year mortgage? Here are some pros and cons of each:

Should you get a 10-year mortgage?

Alternatively, what about a 10-year mortgage? These can be ideal if you want long-term stability, and they can be particularly suitable if you expect mortgage rates to rise in the near future. You’ll only need to pay one set of mortgage and legal fees in that time, and needn’t worry about remortgaging or the additional costs involved for another decade.

They can be particularly suitable for those who are in their “forever home” and aren’t planning on any major life changes in the foreseeable future.

However, bear in mind that your circumstances can change a lot in 10 years, and what works for you now may not necessarily work in the future.

It’s particularly important to make sure that things like overpayments and payment holidays will be permitted to allow for potential fluctuations in your income, and ideally the mortgage should be portable so you’re able to move if you need.

Note too that if you did need to get out of your mortgage early, the exit fees could be significant, so always make sure you’re comfortable with the terms before you make this kind of commitment.

Can you get out of a fixed rate mortgage early?

Yes, though you’ll typically have to pay hefty fees for the privilege. Paying off your mortgage early or remortgaging to a new deal will result in an early repayment charge (ERC) being levied.

ERCs are tied to the mortgage term and are normally a percentage of the outstanding balance, and will typically reduce as the years progress (for example, you could face a 5% charge if you’re in the first year of a five-year fix, reducing to 1% if you’re in the final year).

Given the potential costs involved, it’s important to weigh up the benefits of getting out of the loan early, as even if you could remortgage to a cheaper deal elsewhere, the fees involved could cancel out any saving.

What happens when your fixed rate ends?

Once your initial term has come to an end, you’re generally left with two options: do nothing and let the mortgage revert to the lender’s standard variable rate (SVR), or remortgage to a new deal. For most borrowers, the second option will be preferable, but let’s take a look at what’s involved with each.

Option 1: Revert to the lender’s SVR

The lender’s SVR will almost always be higher than both your initial fixed rate and the current deals on offer. This means your repayments could instantly increase, and because the rate is variable, it can change at any time – any fluctuations are often tied to the Bank of England base rate, but this isn’t the only factor involved, and lenders are under no obligation to explain the changes they make.

This not only means you could be left with a very expensive mortgage, but it can also make budgeting far more difficult, as there’s no way of knowing what the interest rate (and therefore your repayments) will be from one month to the next. This is why most borrowers coming to the end of a fixed rate tend to remortgage before they’re automatically moved onto an SVR.

Option 2: Remortgage to a new deal

When remortgaging, you can either stick with your current mortgage provider or shop around to see if you can find a better deal. It’s always good to see what’s out there, but make sure to speak to your current provider as well – they may be able to offer preferential rates to current borrowers, and may not ask for as many fees either.

Speaking of fees, you can expect to pay a few when you remortgage, including arrangement and booking fees, and valuation costs and conveyancing fees if you move to another provider.

However, many remortgage deals will cover these charges as an incentive, which is why it could pay to do your research – and even with fees involved, it could still pale in comparison to the cost of being switched to a lender’s SVR.

Make sure to start comparing mortgage rates well ahead of your initial term coming to an end to find the best deal for your needs.

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